Rupee weak against dollar, improvement expected in 2025

2024 has been a challenging year for the Indian rupee, with its performance weakening against the US dollar. The strength of the dollar in the global market and India’s economic slowdown increased the pressure on the rupee. It started the year at 83.19 per dollar, falling 3% to a low of 85.59 per dollar by December 27. However, the rupee’s performance is expected to improve in 2025.

What will be the impact on the rupee in 2024?

Impact of global factors

1. Russia-Ukraine War:
   • Geopolitical instability associated with the war affected global trade and investment.
2. West Asia crisis:
   • Trade disruption in the Red Sea and reduction in oil supplies put pressure on the rupee.
3. Global Central Bank Policies:
   • Policies from major central banks, including the US Federal Reserve, strengthened the dollar, which weighed on emerging market currencies.

domestic factors

1. Dependence on Crude Oil:
   • India’s dependence on imported crude oil increases the demand for dollars.
2. trade deficit:
   • The rising trade deficit further weakened the rupee.

Big fall in rupee in last two months

Sharp decline in October-December

• On October 10, the rupee crossed the level of 84 per dollar.
• On December 19, it reached a record low of 85.80 per dollar.
• The biggest single-day fall was recorded on December 27.

Better performance against other currencies

• Japanese yen:
  • The rupee strengthened by 8.7% against the yen.
  • From 58.99 per 100 yen on January 1, it reached 54.26 per 100 yen on December 27.
• Euro:
  • The rupee strengthened 5% against the euro since August 27.
  • From 93.75 per euro on December 27 it came to 89.11 per euro.

RBI’s efforts: Initiative to stabilize the rupee

interventions and measures

• Foreign exchange reserves:
  • It fell from a high of $704.89 billion in September 2024 to $644.39 billion as of December 20.
• Dollar Supply:
  • RBI tried to keep the rupee stable by increasing the supply of dollars in the market.
• Currency Management:
  • The effect of appreciation of non-US currencies was reflected in foreign exchange reserves.

expert opinion

According to Naveen Mathur of Anand Rathi Shares & Stockbrokers, the RBI has taken active intervention to arrest the rupee’s fall, which is evident from the use of foreign exchange reserves.

Impact of China’s recession

Falling GDP and Indian business

• China’s GDP growth falling to 4.8% hit demand for Indian exports.
• Supply chain disruptions and the Red Sea crisis upset the trade balance.

global trade tensions

Tensions in West Asia and other geopolitical issues affected not only India, but also the economies of other emerging markets.

2025 expectations for rupee

Dollar’s dominance likely to diminish

• Experts believe that the pace of interest rate hike by the US Federal Reserve may slow down, which will weaken the dollar.
• The currencies of emerging economies will benefit from this, which includes the rupee.

domestic policies

• India’s economic reforms, active intervention by RBI and increase in exports may strengthen the rupee.

stability in oil prices

• If global oil prices remain stable, India’s trade deficit may narrow, which will reduce pressure on the rupee.